The term “managed service company” (MSC) refers to a limited company in the United Kingdom that independent contractors and self-employed people use. In an MSC, workers serve both as directors and shareholders. The IR35 Act was passed in the year 2000, and it was then that managed service businesses were first made available in the UK. Along with adopting the MSC corporate structure, the IR35 Act was passed to lower the likelihood of tax evasion. In the case of MSCs, it was utilised to lessen the possibility that shareholders and directors would have to shoulder any tax responsibilities. The word “MSC” is frequently used to refer to limited corporations where workers are designated shareholders and directors of the company. Even though MSCs are not recognised as a legal structure for doing business, the phrase is commonly used.

Contractors must pass the IR35 tests (Employment Status Tool) to be able to operate within an MSC. These tests are designed to verify that you are paying the appropriate amount of income tax and national insurance. The House of Commons and the House of Lords Revenue and Customs (HMRC) passed a new rule in 2007 requiring managed service companies to conform with existing tax regulations. This was done because some MSCs were evading taxes through the company. If you are a contractor who uses an MSC, you are still obligated to pay the appropriate income tax and national insurance, just like you would if you were an employee. This is the case even if you are not technically an employee. If the HMRC discovers that you have used an MSC to evade taxes, you will be held responsible for making back payments and will also be subject to a tax. Because of this, it is assumed that independent contractors appointed to positions of authority inside a company, such as directors or shareholders, will pay the appropriate tax required of regular workers.